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Enforceability of Association Parking Restrictions Related to Public Streets

Enforceability of Association Parking Restrictions Related to Public Streets

Many community association declarations contain restrictions on the parking of vehicles on streets located within the community.  For communities that contain private streets maintained by the association, it seems clear that these restrictions would be enforceable.  However, for communities that contain public streets, the enforceability of those restrictions is not so clear.

There appears to be no reported decision by a Florida appellate court dealing with the issue of whether a community association can enforce restrictions purporting to prohibit parking on public streets.  However, that may soon change.

A trial court, in Pinellas County, has ruled that a homeowners association cannot enforce such parking restrictions relating to public streets.  That case arose from the filing of a lawsuit by the impacted owners which sought the entry of an injunction prohibiting the association from enforcing a parking restriction relating to public streets.  The trial court granted that injunction.  The association that was a party to that case filed an appeal with the Florida Second District Court of Appeal.  In Woodfield Community Association, Inc. v. Ortiz by and through Ortiz, 2018 WL 3403387 (Fla. 2d DCA 2018), the appellate court set aside the injunction, but only on the basis that the trial court’s order failed to include certain information needed to support entry of an injunction.  The appellate court did not discuss the underlying issue of whether the injunction would have been sustained, on its merits, had the trial court listed the necessary information.  Instead, that issue would need to be presented to the appellate court by the filing of a new appeal after the trial court enters a new order.

If such an order is entered by the trial court and the association files another appeal, Florida’s Second District Court of Appeal will be in a position to author the first Florida appellate court opinion as to the enforceability of parking restrictions relating to public streets.

There are at least 3 reported decisions, from out-of-state appellate courts, that have addressed this issue. In one of the cases, Raintree of Albemarle Homeowners Association, Inc., 413 S.E. 340 (Va. 1992), the court ruled that such restrictions could not be enforced.  In the other two cases, Maryland Estates Homeowners’ Association v. Puckett, 936 S.W. 2d 218 (Mo. Ct. App. 1996); and Verna v. The Links at Valleybrook Neighborhood Association, Inc., 852 S. 2d 202 (N.J. Super. Ct. App. 2004), the courts ruled that such restrictions could be enforced, at least as to owners in the community.

The argument to support a finding that these restrictions are not enforceable is that an entity, such as a community association, does not have the authority to control access to or the use of a road that is owned by a municipality.  The argument to support the enforceability of these restrictions is that parties, such as an association and its owners, are free to enter into a contract (the recorded deed restrictions) containing restrictions that would impose greater limits on an owner’s use of property than those imposed by governmental restrictions.

 

Community Associations Should Consider  Splitting of Ledgers When an Owner Files Bankruptcy

Community Associations Should Consider Splitting of Ledgers When an Owner Files Bankruptcy

Many homeowners associations and condominium associations struggle with the manner in which a bankruptcy filing by one of its owners should impact the ledger that is maintained by the association for the property owned by the owner that files the bankruptcy case. I often see associations fail to maintain a ledger, or other account information, which will allow the association to distinguish between: (a) the amounts that came due before the filing of the owner’s bankruptcy petition (often referred to as the “Pre-Petition Amounts Due”); and (b) the amounts that came due after the filing of the owner’s bankruptcy petition (often referred to as the “Post-Petition Amounts Due”). The best way to maintain records that distinguish between the Pre-Petition Amounts Due and the Post-Petition Amounts Due is to separate a ledger for an owner that files bankruptcy into two ledger parts. One part would reflect the Pre-Petition Amounts Due and the other part would reflect the Post-Petition Amounts Due.

The ledger for the Pre-Petition Amounts Due (the “Pre-Petition Ledger”) would reflect the amounts due, itemized by type of charge, as of the date of the filing of the owner’s bankruptcy petition. That ledger balance would increase, after the bankruptcy filing, by the addition of any interest charges or late fees associated with the unpaid assessments listed on the Pre-Petition Ledger and by the addition of any attorney’s fees or legal costs associated with collection efforts relating to the recovery of the Pre-Petition Amounts Due. The ledger for the Post-Petition Amounts Due (the “Post-Petition Ledger”) would include all future accruing assessments after the date of the bankruptcy filing, as well as interest charges or late fees associated with the unpaid assessments listed on the Post-Petition Ledger. That ledger would also include any attorney’s fees or legal costs associated with collection efforts relating to the recovery of the Post-Petition Amounts Due. Once the bankruptcy case ends, the owner’s split ledgers can typically be re-combined into a single ledger.

It is important for an association be able to separate the Pre-Petition Amounts Due from the Post-Petition Amounts Due for a number of reasons. Several of those reasons are discussed below.

First, when a payment is received for an account in which the owner is in bankruptcy, the association will need to apply it to either the Pre-Petition Amounts Due or the Post-Petition Amounts Due. The “side of the ledger” to which the payment will need to be applied will depend upon a number of factors, including whether the payment was made by the owner or the bankruptcy trustee and, in the event of a Chapter 13 filing, the manner in which the association’s claim is to be treated in the owner’s bankruptcy plan. If there is a single ledger that is maintained, there would be no clear way to distinguish the payments made toward the Pre-Petition Amounts Due from the payments made toward the Post-Petition Amounts Due.

Second, in a Chapter 7 case that results in a bankruptcy discharge and in which the association did not have a recorded lien at the time of the filing of the bankruptcy petition, the association will typically need to write-off all Pre-Petition Amounts Due. That task is far easier if the association splits its ledgers or otherwise maintains records which will allow it to easily determine which amounts were included in the Pre-Petition Amounts Due.

An association can continue to seek recovery of post-petition assessments from an owner who files a Chapter 7 case and obtains a bankruptcy discharge. See 11 USC §523(a)(16). However, if an association does not split its ledgers, it may find it difficult to determine the amount of post-petition assessments and other charges that can be demanded as part of the Post-Petition Amounts Due.

Third, if the owner files a Chapter 13 case, he might present a bankruptcy plan that provides for payment of all Pre-Petition Amounts Due, with the payment of all Post-Petition Amounts Due being made outside of the plan. That owner might also present a plan that calls for any lien held by the association which secures the Pre-Petition Amounts Due, to be “stripped away”, with the owner remaining liable for paying all Post-Petition Amounts Due. In either instance, if there is a single ledger that is maintained, there may be no clear way to distinguish those amounts that are being claimed under the Pre-Petition Amounts Due from those amounts being claimed under the Post-Petition Amounts Due.

The penalty for not maintaining accurate information can be severe. An association that seeks to recover debt that has been discharged in bankruptcy or that seeks to recover pre-petition debt (subject to limited exceptions) directly from an owner who is a debtor in an active bankruptcy case, may be liable for monetary damages and/or attorney’s fees for violating the “discharge injunction” or the “automatic stay” provisions of the Bankruptcy Code. See 11 USC §105(a), § 362(a), and §524(a).

At least one bankruptcy court’s written opinion has recognized the need for an association to maintain separate accounting records to differentiate the Pre-Petition Amounts Due from the Post-Petition Amounts Due. In the case of In re Moreno, 479 B.R. 553, 567 (Bankr. E.D. Cal. 2012), the court granted sanctions against an association for its attempt to collect amounts which had been discharged in bankruptcy. In that case, the court noted: “once the Debtor filed for bankruptcy protection, the Association should have started a new and separate accounting to properly track the post-petition debt that would be covered by §523(a)(16).” The court further noted that the association’s attempt “to divide the discharged [pre-petition] portion of the Debtor’s account from the post-petition portion of her account by simply drawing a line across the Accounting [on the date of the bankruptcy filing]” did not result in a proper determination of the post-petition amounts due as that caused post-petition interest to be improperly calculated on both the unpaid pre-petition debt (which was discharged) and the unpaid post-petition debt.  479 B.R. at 567-68.

An association that fails to either split its ledgers into a Pre-Petition Ledger and a Post-Petition Ledger or to take other steps to maintain separate accounting records to distinguish the Pre-Petition Amounts Due from the Post-Petition Amounts Due is likely to encounter greater difficulties in determining the amounts that are due from owners who file bankruptcy. Also, the failure to take the needed steps to maintain separate accounting records can result in an association being subject to sanctions from a bankruptcy court in the event the association seeks to collect amounts which are no longer recoverable.

ShuffieldLowman’s four downtown offices are located in Orlando, Tavares, DeLand and Daytona Beach.  The firm is a 34 attorney, full service, business law firm, practicing in the areas of corporate law, estate planning, real estate and litigation.  Specific areas include, tax law, securities, mergers and acquisitions, intellectual property, estate planning and probate, planning for families with closely held businesses, guardianship and elder law, tax controversy – Federal and State, non-profit organization law, banking and finance, land use and government law, commercial and civil litigation, fiduciary litigation, construction law, association law, bankruptcy and creditors’ rights, labor and employment, environmental law and mediation.

Community Associations Should Consider Changes to Documents Due to Westwood Gardens Decision

Community Associations Should Consider Changes to Documents Due to Westwood Gardens Decision

Many homeowners associations and condominium associations in Florida will be greatly impacted by a Florida appellate court decision that was issued in May of 2015. On May 27, 2015, the Fourth District Court of Appeal, in the case of Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., No. 169 So. 3d 145 (Fla. 4th DCA 2015), interpreted the provisions of Section 720.3085, Florida Statutes, which allow a homeowner’s association to recover a portion of the past due amounts owed on an account in which title has been transferred through the issuance of a certificate of title (“COT”) in a mortgage foreclosure action, as being inapplicable where the association’s own declaration provides for a recovery which would be less than the recovery provided for under this section of the Florida Statutes.

While the Westwood Gardens case dealt with a third-party purchaser at a mortgage foreclosure sale rather than a situation involving the acquisition of title by a first mortgage holder, it appears the holding in that case would also apply in the case of a foreclosure sale in which the former first mortgage holder (or its assignee) becomes the owner.

Section 720.3085, Florida Statutes provides that in the event of the completion of a mortgage foreclosure action resulting in the issuance of a COT, the new owner will be liable for a portion of the past due balance that existed as of the date of the issuance of the COT. However, based upon the Westwood Gardens decision, this section will not apply unless the declaration for the association is silent, contains language which matches the language set forth in this section, or contains language which incorporates, by reference, the provisions in this section. The vast majority of homeowners’ association declarations I have reviewed over the past 25 years contain provisions similar to those that were found in the association’s declaration in Westwood Gardens.

While the association in Westwood Gardens was a homeowners association, it appears the holding in that case could also be extended to condominium associations.

As a result, all community associations should consider reviewing their declarations to determine if they contain provisions that deal with the right, if any, of the association to recover amounts that pre-dated the transfer of title, including a situation in which the transfer of title arises through the issuance of a COT from the purchaser at a mortgage foreclosure sale. The association should then consider whether to change that language (assuming the procedures for making an amendment can be satisfied), to allow for the recovery of amounts that pre-dated the transfer. The association could seek to change its declaration to provide for the same recovery as is available under Section 720.3085, Florida Statutes or Section 718.116, Florida Statutes, or it can seek to provide for recovery of amounts which exceed those available under the Florida Statutes.

Community Associations Have Standing to Assert Defenses to Mortgage Foreclosure Actions

When a community association acquires title to a property through the completion of a lien foreclosure action, it must then determine whether to oppose an attempt by a purported lender to foreclose superior mortgage on the property. Lenders have often argued, based upon certain Florida appellate decisions, that the association has no legal standing to assert defenses to a mortgage foreclosure action in situations in which the mortgage was executed by a predecessor owner. However, there now appears to be a recent appellate court case to support the position of a community association.

As far back as 2012, the Fifth District Court of Appeal, at least in dicta, stated that the issue of standing, as it relates to the right to challenge and/or defend against a purported lender’s claims in a mortgage foreclosure action, is not subject to a blanket rule and depends upon the relationship of the party challenging a mortgage to the subject property. Centerstate Bank Cent. Fla., N.A., v. Krause, 87 So.3d 25 (Fla. 5th DCA 2012).

In Centerstate, the court stated “Standing depends on whether a party has a sufficient stake in a justiciable controversy, with a legally cognizable interest that would be affected by the outcome of the litigation.”

The court in Centerstate further stated: “On the other hand, standing to contest the validity of a mortgage belongs to the mortgagor and to third persons whose rights or interests are adversely affected by the mortgage, such as junior mortgagees or creditors with an interest or lien in the underlying property.”

In the recent case of Tanner v. Bayview Loan Serving, LLC, 2015 Fla App. LEXIS 12027 (Fla. 5th DCA 2015), the Fifth District Court of Appeal, relying upon the principles of standing discussed in Centerstate, reversed the entry of a foreclosure judgment based upon arguments made by a junior lienholder, who asserted that the judgment was improper because the lender had failed to present evidence at a trial. The trial court had entered a judgment based upon a stipulation between the lender and the borrower/property owner.

In so doing, the Court recognized the right of a junior lien holder to challenge the enforcement of a first mortgage and to require that first mortgage holder establish its rights to enforce the mortgage and prove the right to recovery of amounts claimed to be due under the mortgage. The Court in Tanner (citing to Centersate) stated: “Third persons whose rights or interests are adversely affected by a mortgage, such as junior mortgages or creditors with an interest or lien in the underlying property, have standing to contest a foreclosure action brought by a party claiming a superior interest.”

Clearly, if a party holding a junior lien on property has standing to assert a defense to the enforcement of an allegedly superior mortgage, an owner of property, whether that person or entity was the owner when the mortgage was created or is a successor owner, would have that standing as well. An owner, even if that owner is a community association, clearly has an “interest” in the underlying property and would be adversely effected by a mortgage.